Mastering Business Expenses in Korea: Essential Guide for Entrepreneurs and Expats
Are you still keeping copies of receipts for business expenses?
Storing card or cash receipt copies in files with glue is no longer necessary.
Under the Value-Added Tax Act, all qualifying documentation, including tax invoices, invoices, card (credit/debit) receipts, and cash receipts, are well preserved electronically in Hometax. Also, all card receipts are neatly organized in the monthly statements sent by the card companies.
For business trips or entertainment expenses, employees should use their or the company's credit/debit cards and submit these with a travel report for reimbursement. However, if you have to attach a paper tax invoice, invoice, or simplified invoice(간이계산서), it should be stored. ERP systems like SAP allow attaching these documents as PDF copies to invoices.
The types of receipts and their tax law limits are as follows:
For simplified invoices exceeding 30,000 won, a 2% additional penalty tax is applied to the excess amount.
Entertainment expenses are not VAT deductible and may be disallowed as an expense if they exceed a certain proportion of sales revenue.
The necessary details for qualifying documentation are:
Tax Invoice:
Details of both supplier and purchaser's business registration
Details, unit price, and quantity of goods or services
VAT amount and total amount
Date of supply
Email addresses of supplier and purchaser (for electronic tax invoice/invoice)
Credit/Debit Card Receipt:
Supplier's business registration details
Details, unit price, and quantity of goods or services
VAT amount and total amount
Time/date of supply
Cash Receipt:
Supplier's business registration details
Details, unit price, and quantity of goods or services
VAT amount and total amount
Time/date of supply
All these documents are electronically registered on the National Tax Service Server.
Electronic tax invoices and cash receipts can be downloaded as Excel files at any time, and card receipts can be downloaded after the 15th of the quarter.
When employing staff, documents like ID or family registration(주민등록등본) copies are needed.
For entertainment expenses exceeding 30,000 won per event, a proper documentation is required. Specifically, for corporate entertainment expenses, only those paid with a corporate card are recognized. For gift certificate entertainment, the law recognizes only those paid with a corporate card for corporations and a business card for sole proprietors. Typically, small and medium-sized enterprises can consider 36 million won per year as the limit for entertainment expenses, with any excess being disallowed for corporate tax purposes.
For condolence and congratulatory expenses, you must keep invitations (wedding) or obituaries (funeral) letter, with up to 200,000 won being recognized as an deductible expense.
All companies/individuals paying or receiving personal expenses, rent, or other transaction costs must use an account in their name (real-name business account) to ensure these expenses are deductible.
For more details, please feel free to reach out at jz@taxjz.com or If you would like a consultation with an English-speaking Consultant/Accountant in Korea, please schedule a call at: Schedule a Call with Jz
